MUMBAI (Thomson Financial) – Moody’s Investors Service said approved amendments to Spain’s Mortgage Market Law, which are due to come into force shortly, will strengthen and clarify the credit position of holders of Spanish mortgage covered bonds (known as ‘Cedulas Hipotecarias’ or CHs) as well as the timely payment of these instruments following an issuer insolvency.
The amended law will improve the over-collateralisation of the CHs by limiting CH issuance to 80 pct of the bank’s eligible mortgages, against 90 pct currently.
The law does not change one of the key strengths of the framework, that is that the whole pool of (non-securitised) mortgages supports the CHs in the event of issuer insolvency. This is in contrast to other European jurisdictions where covered bonds are backed by an earmarked portfolio, Moody’s said.
The amended law will improve the asset eligibility criteria in a number of respects, including lowering the loan-to-value ratio for eligible non-residential mortgages to 60 pct from 70 pct, extending the geographical scope to European Union properties, permitting substitute assets up to 5 pct of the outstanding CHs and allowing financial derivatives to form part of the cover pool.
It will also enhance the timely payment of the CHs following issuer default and will oblige the issuer to maintain an internal cover register identifying eligible and non-eligible assets, thus improving transparency, Moody’s said.
The amended law will also remove an administrative requirement that has to date impeded the issuance of another type of Spanish covered bond: the ‘Bonos Hipotecarios’, the rating agency said.
Moody’s currently rates 15 mortgage covered bonds in Spain, corresponding to 11 to single issuers and four Spanish funds that pool CHs of multiple issuers.
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